Wednesday, July 25, 2007

'It's Worse than the '90s;' Death of the "So-Called Soft Landing"

From the Sacramento Bee:

Sacramento real estate broker Carey Covey has so much business these days he can hardly handle any more. Covey sells homes repossessed by the banks. And all signs point to a lot more of them coming onto the market..."It's steadily been increasing for a year," said Covey, a 20-year veteran of selling homes taken back by banks. "I think it's worse than the '90s."
Christine McCullough will lose her Natomas house to the bank in September...Last year the Sacramento County employee lost $1,800 in extra monthly consulting income that had made the 2005 purchase possible..."It was a bad time to buy," she said. "I shouldn't have purchased. It was just a bad time."

In San Diego, former El Dorado Hills resident Rachelle Agatha and her husband, Steve Cascioppo, began missing payments in June on a big house they bought three years ago. The trouble started last December when Cascioppo got a new job in San Diego. Selling a $975,000 house in a falling market proved impossible. So did simultaneously paying San Diego rent and an El Dorado Hills mortgage.

"It's been a nightmare," Agatha said. "We aren't like your typical deadbeat people who don't want to pay your mortgage any more. We make good money, and if we hadn't been relocated we wouldn't be in this position." Two weeks ago she, too, started a new job in San Diego, as controller for a health care firm. The El Dorado house is vacant.
From the Appeal-Democrat:
Housing bubble bursting in Yuba

Foreclosure activity is picking up the pace with Yuba County leading the state in its percentage increase in default notices, according to a report issued Tuesday. Second-quarter 2007 notices of default nearly quadrupled in Yuba County over the same quarter a year ago, according to DataQuick Information Systems....Default notices, the first step in the foreclosure process, went up 280 percent in Yuba County – the biggest county jump recorded by DataQuick. The 45 default notices issued last year rose to 171 in the second quarter. Foreclosures climbed from four to 84 in Yuba County during the same time period.
Falling home values also present a problem – particularly in pocket areas like Plumas Lake that have seen home values fall as much as $100,000 to $150,000, said [Bimal] Mann [president of Trinity West Mortgage]. “The value dropping as fast as it’s been has not helped the situation,” she said.
Yuba County’s median home price decreased by 10.4 percent in June 2007 compared with a year ago as the once-hot Sacramento housing market chilled, while Sutter County’s home prices were down 8.5 percent, said [DataQuick's Andrew] LePage. “Sacramento is the weakest large market in the state,” said LePage.
From the Stockton Record:
San Joaquin County mortgage holders were among the most likely in California to fall behind on their payments as housing foreclosure activity continued to quicken in the second quarter....DataQuick...said San Joaquin County saw 1,983 defaults in the April-through-June period, more than three times the 604 defaults in the second quarter of 2006...There were 785 foreclosures in San Joaquin County in the second quarter, 12 times more than the 64 seen in the same period of 2006.
Stockton real estate broker Art Godi agreed that subprime mortgages - loans made to high-risk borrowers - are contributing to the flood of defaults and foreclosures. Payments on many of those loans are rising over time, and the borrowers can't keep up. "They were making loans that were about as liberal as we've ever seen," he said Tuesday. "In my 46 years in real estate, they were the most liberal terms I've ever seen. "And now what's happening, that's exacerbating the situation, is the pendulum swings the other way," Godi said. Now they're getting really cautious, and now the subprime lenders are fading out."
In June, the median sales price of the 539 homes and condos sold in San Joaquin County was $390,000, DataQuick reported. That's a drop of nearly 12 percent from the $443,000 median a year ago.
From the Modesto Bee:
Record numbers of Northern San Joaquin Valley homes were lost to foreclosure and sold on the courthouse steps in April, May and June. Staggering increases in mortgage default rates and foreclosures were recorded this spring....There were 1,547 houses and condos foreclosed on in Stanislaus, San Joaquin and Merced counties during those three months. That was more foreclosures than for any other quarter going back at least to 1988, which is as far as DataQuick's records go.

And the news is expected to get worse..."Since default notices continue to climb, that suggests that, unfortunately, we likely will see the number of foreclosures keep increasing through the rest of this year," said Andrew LePage, a DataQuick analyst.
The depth of the default crisis can be seen in today's Modesto Bee Classified advertising section, where two pages of legal notices (F-7 and F-8) announce the times and dates of more than 20 upcoming foreclosure trustee sales.
From the Fresno Bee:
The number of foreclosures in the quarter jumped to 1,380 in Fresno County and to 53,943 statewide -- a year-over-year increase of 158%. "This is unquestionably the worst I've seen," said Bill Pfeif, a 30-year veteran agent at Guarantee Real Estate in Fresno who sells lender-owned real estate. "Every week, the pace increases. "You just wonder where it is going to end."
Many carried adjustable rates that have climbed steeply as home prices have fallen, trapping some buyers. "People just crossed their fingers," said Patrick Duffy, a consultant to home builders. "They never planned for the worst-case scenario."
"In the hardest-hit areas, it's going to undermine the market, no doubt, though it's difficult to quantify the impact to home values," LePage said.
"I think a lot of potential home buyers see the foreclosure situation worsening and view it as one more reason to remain parked on the sidelines, so to speak, in hopes the market turns even more in their favor," said Andrew LePage, a spokesman for La Jolla-based DataQuick.
From the LA Times:
Most analysts say the housing market won't stabilize until 2008 or 2009. The so-called soft landing that was much talked about last year is rarely mentioned anymore.
Sacramento County Foreclosures & Notices of Default

Click each graph to enlarge.

2007 Q2: 1,662
90s Record: 703 (1997 Q2)

2007 Q2: 3,840
90s Record: 2,441 (1997 Q1)


rocklin renter said...

Selling a $975,000 house in a falling market proved impossible.

So lower your price dummy!

Oh wait, they probably refi-ed their way into screwedom.

Patient Renter said...

Lander: So I guess this means the original question posed by the blog (and its name) has now been officially answered? :)

Lander said...

Yes, the cockpit is quite a few miles underneath the runway, isn't it? Let me know when we get to China.

Lander said...

DataQuick Press Release:
While foreclosures tugged property values down by almost 10 percent in some areas eleven years ago, their effect in most markets today is still negligible. However, the continued rise in NoDs means that the number of homes lost to foreclosure will continue to increase in the second half of this year. Foreclosure levels are already high in certain Inland Empire and Central Valley markets, where the worst-hit neighborhoods might already be seeing property values eroded somewhat by foreclosures, DataQuick reported.

Sacramento Bee:
DataQuick analysts warned the numbers could begin tugging down property values in the hardest-hit neighborhoods, especially in the San Joaquin Valley and Inland Empire.

Anyone notice the subtle change?

norcaljeff said...

Two none RE comments struck me as I read that SacBee article:
The first homeowner in trouble is a consultant, a.k.a. moonlighting, for an extra $1800/month in income in addition to her day job. I wonder what the County thinks of that, probably a violation of some county law that no one is enforcing. No wonder these people can afford these ridiculous home prices. My employer wouldn't allow that, nor would I have the time with a FULL TIME JOB!.
Then the second lady says she's a Controller for a Health Care firm. Geez, you'd think a Controller would be better with her money. That scares the hell out of me. I wish I knew the name of her company, I'd short that stock bigtime.

smf said...

"The first homeowner in trouble is a consultant, a.k.a. moonlighting, for an extra $1800/month in income in addition to her day job."

My buddy hired a Realtor when he tried to sell his house in 2005. Ended up that she was a State worker moonlighting as an agent. I wouldn't be surprised if she was selling RE on the side.

"Geez, you'd think a Controller would be better with her money."

You would be wrong. I have plenty of examples in my family where they believe in the health of the RE market.

Dad is self-financing a spec. mansion in Serrano.

Sister bought a $700K fixer upper in LA, and will attempt to sell in 2-3 years. Her husband called the bottom already in LA.

In-laws were surprised that their million dollar home in EDH is no longer a million.

Fortunately, they all should be able to handle the future.

But it shows that it is not necessarily stupidity. It is information. Garbage in, garbage out. They received and acted on wrong information.

Others simply got too greedy.

I did the same in the era.

I had a 25%+ return in some stocks, and lost it all waiting for a little more. But I had some stocks that I thought were too high in price, and timed my exit perfectly. That was my lesson in greed. I rather have a little more money than none at all.

Many did not understand that lesson.

Perfect Storm said...

The so-called soft landing that was much talked about last year is rarely mentioned anymore.

Like saying it a billion times would make it true.

Oh wait that only works for me.

Were right on track for a 50% decline by 2009.

norcaljeff said...

SMf - Pretty scary family you have :) If there's others out there like yours, it will get way worse!

Lander said...

I updated the post to include some comparisons with the foreclosure & NODs peaks of the 1990s. We are now more than 2x the 90s peak for foreclosures.

And for those of you that think that the Bay Area is immune to the bursting bubble, check out these graphs from the SF Chron.

smf said...

"SMf - Pretty scary family you have :) If there's others out there like yours, it will get way worse!"

Why do you think all this interests me? And why I deride anyone (real) who thinks that all this is contained to certain areas?

As mentioned, the members mentioned make a lot of money, so it will not ruin them. But 'losing' $100Ks is not pleasant for anyone.

My in-laws finally saw the light. But the house that they purchase was indeed a special house, with a great view of the entire city. So they jumped into it. But they have the money to pay for it.

As for my dad, it should be enough to tell you that he is building in Greenview Street in Serrano. And he is being 'assisted' by his friend who works as an accountant for CalTrans.

No, this is not limited to some poor people out there. This will affect everyone at the end.

Oh, and finally our Realtor relative told us that business was slow.

Gwynster said...


It's not just your family. My cousin is a Kellog grad (I'm the slacker in the family) and we argue about housing all the time. I'm looking forward to a little come upance at Thanksgiving >; )

cole said...

You mean, you mean real estate has collapsed?

Boy is that news! Thanks Sac Bee for your astute and timely reporting!

It's like this...25% DOWN, 30 years FIXED, or get the VA/FHA to guarantee the loan for a lower downpayment...

If you ain't got the cash, TOUGH, wait until after the CRASH in 2012 and buy a fixer upper...There will be plenty around by then as Elk Grove/Rocklin/Roseville/Rancho will have plenty of stucco dumps available...all 2004/2005 models

Cmyst said...

I got this fold out map with all kinds of new home "communities" marked on it, and 1K and 5K kick-backs offered to anyone that you refer that closes escrow, Dunmore Homes and Kimball Hill Homes. Came in the mail.
I've never gotten one of these things before. It reminds me of the way some hospitals recruit nurses, which means that the builders are desperate.

Lander said...

From Inside Bay Area:

"The Bay Area in the greater scheme of things is actually pretty well off, and even in this cycle won't have much of a foreclosure problem," said John Karevoll, a DataQuick analyst. Karevoll pointed to Sacramento County, with 3,840 reported mortgage defaults in the second quarter, as an example of a truly high number.

Patient Renter said...

"But the house that they purchase was indeed a special house, with a great view of the entire city"

Very, very little is truly special. A house my parents used to own in the foothills (on top of a hill) had a view of the entire valley all the way to the bay area, the rivers, the lakes, sacramento, all of it. Its value dropped during the 90s slump just like everything else.

norcaljeff said...

Excellent point, PR.